noticias.info (press release), Spain
Dec 2 2004

IMF Executive Board Completes Final Review Under PRGF Arrangement for
the Republic of Armenia

/noticias.info/ The Executive Board of the International Monetary
Fund (IMF) today completed the sixth and final review of the Republic
of Armenia’s economic performance under a three-year Poverty
Reduction and Growth Facility (PRGF) arrangement. The completion of
this review enables Armenia to draw an amount equivalent to SDR 9.0
million (about US$13.7 million).

In completing the final review, the Executive Board also approved
Armenia’s request for a waiver of two structural performance
criteria.

At the time of the fifth review on May 3, 2004 the period of the
arrangement was extended through December 31, 2004 (see Press Release
No. 04/90). Armenia’s PRGF arrangement was initially approved with
effect from May 23, 2001 (see Press Release No. 01/25) for an amount
equivalent to SDR 69 million (about US$105.3 million). With the
completion of the sixth review, the arrangement will be fully
disbursed. The authorities have also stated their intention to begin
discussions with the IMF on a new three-year PRGF arrangement that
would support an economic program through 2008.

Following the Executive Board’s discussion of Armenia’s performance
under the current PRGF-supported program, Agustín Carstens, Deputy
Managing Director and Acting Chair, said:

“The Armenian authorities should be commended for Armenia’s strong
economic performance in recent years, in the context of satisfactory
implementation of the PRGF-supported program. Prudent monetary and
fiscal policies, external financial support, and progress with
structural reforms have contributed to double-digit economic growth,
poverty reduction, low inflation, and a sustainable debt burden.

“Looking ahead, the authorities should maintain a cautious fiscal
stance and ensure that the expenditure envelope is in line with PRSP
priorities on social and infrastructure spending. Monetary policy
should remain tight while maintaining a flexible exchange rate regime
in order to bring inflation down to the authorities’ objective of 3
percent. To facilitate further financial intermediation, reforms are
needed to enhance corporate governance in banks, streamline
collateral recovery procedures, and improve court processes.

“Notwithstanding the progress made in recent years, the authorities
need to tackle more forcefully the remaining deficiencies and reduce
discretion in tax and customs administration. This will contribute to
an improved business environment and yield higher tax revenues to
finance pro-poor spending. On the expenditure side, a balanced mix
between current and capital spending will be critical to sustain the
high trajectory of growth. This will require higher allocations to
capital expenditures in the transport, agriculture, and water
sectors. At the same time, the envisaged increases in social spending
highlight the importance of ensuring that they will be utilized
efficiently and transparently.

“The authorities should be commended for the improvement in the
energy sector in recent years. Looking ahead, the authorities need to
complete the reform agenda in this sector and step up the
implementation of reforms in the water and irrigation sectors,
including through an increase in tariffs to cost recovery levels.

“Armenia’s medium-term prospects are likely to remain favorable
provided the authorities move ahead with the implementation of the
reform agenda and redouble their efforts to improve governance,” Mr.
Castens stated.

The PRGF is the IMF’s concessional facility for low-income countries.
PRGF-supported programs are based on country-owned poverty reduction
strategies adopted in a participatory process involving civil society
and development partners, and articulated in a Poverty Reduction
Strategy Paper, or PRSP. This is intended to ensure that each
PRGF-supported program is consistent with a comprehensive framework
for macroeconomic, structural, and social policies, to foster growth
and reduction poverty. PRGF loans carry an annual interest rate of
0.5 percent, and are repayable over 10 years with a 5 ½-year grace
period on principal payments.